European corporate bonds edged higher on Friday, led by autos, as investors bet that weaker-than-expected US jobs growth may slow the pace of Federal Reserve interest rates hikes in coming months. Swiss engineering group ABB saw its credit default swaps soar after a US court rejected the Swiss-Swedish company's plan to settle asbestos claims.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 46.8 basis points more than similarly dated government bonds at 1553 GMT, 0.3 basis point less on the day. "The non-farm payrolls were actually not too bad for credit because they showed jobs growth but not enough to raise fears over higher interest rates," said a trader in London. "Autos have seen a nice little rally in the past couple of days."
A surprisingly soft 112,000 new US jobs were created in November, the Labour Department said on Friday. The figure - the weakest since July - came in below Wall Street economists' forecasts of 180,000 new jobs, though the unemployment rate eased to 5.4 percent from 5.5 percent in October.
Short-term interest rate futures surged higher after the report as investors pared expectations for aggressive hikes in central bank interest rates. Futures priced in a quarter percentage point rate increase in December, but the odds on a further rise in February slipped to 80 from 90 percent.
General Motors Corp.'s 8.375 percent euro bond due July 2033 was bid at 312 basis points over Bunds at 1515 GMT, about two basis points tighter on the day. The spread has narrowed around 10 basis points since Wednesday, when the world's largest carmaker reported disappointing November sales. The spread is 19 basis points wider since November 5.
Bonds of major telecommunications firms were little changed on Friday, another trader said, though Telecom Italia outperformed the rest of the market amid speculation over its proposed merger with mobile arm TIM.
Top partners in Olimpia, the holding company controlling Telecom Italia, are seeking an agreement to pave the way for a 20 billion euro ($26.7 billion) merger of the phone group with TIM, sources close to the talks said.
Five-year credit default swaps on Swiss engineering group ABB edged lower on Friday afternoon, after soaring earlier in the day after a US court rejected a plan to settle asbestos claims.
By 1450 GMT, five-year default swaps were at 150 basis points, up 65 basis points on the day, but off a high of 220 basis points hit in early trading, a trader said. The price means it costs 150,000 euros a year to insure 10 million euros of ABB debt against default.
Analysts at Dresdner Kleinwort Wasserstein said in a note that the ruling "means it will be far more difficult for ABB to sell the downstream OGP business and is unlikely to return to investment grade in the near term."
Transport for London sold a 200 million pound fixed-rate bond due March 31 2035, lead managers HSBC and Morgan Stanley said on Friday. Demand reached 1.4 billion pounds, an official at one of the lead managers said.
The high-yield primary market had a busy day with new deals from German cable firm Kabel Deutschland, packaging maker Chesapeake Corp., German engineering company Peri GmbH and chemical products company Huntsman International.